[haiku url=”http://traffic.libsyn.com/biggsuccess/00838-112912.mp3″ title=”The BIGG Success Show #838″]The Rule of 72 is a quick way to determine how many years it takes to double your money. You simply divide the interest rate into 72 to get the number of years it will take to double your money. For example:

Let’s say you have an investment that earns 6%. 72 divided by 6% = 12 years. You’ll double your money in 12 years.

See how easy that is!

Calculating the long-term potential of a bonus

So let’s say you get a bonus this year of $5,000 (after taxes). You decide to invest it for your retirement in 24 years.

This one-time investment of $5,000 could be expected to turn into $10,000 in 12 years which will turn into $20,000 by the time you retire in 24 years.

A caveat and the implicit assumptions

One caveat though – it’s not absolute. It’s a rule of thumb. In a pure mathematical sense, it’s technically 69.3, not 72.

Besides the caveat, this rule also makes some simplifying assumptions. It assumes that all investment income is tax deferred or tax free. Further, it assumes that your return occurs certainly and evenly over the life of the investment.

Since most investments don’t work this way, Charles Givens suggested in Wealth Without Risk that that you should use 76 instead of 72.

However, we suggest that you not get hung up on the number. Just remember it’s an approximation. More importantly, it’s a tool.

So let’s talk about how to use this tool to quickly see the impact of financial decisions.

Using the Rule of 72 to choose a car

Let’s say you need a different car. You find two cars you like and you have the cash to buy either one.

However, one car costs $5,000 more than the other one. We’ll bring back our previous example – where you thought you could earn 6% on your money and assuming you want to retire in 24 years.

By buying the cheaper vehicle, you will have $20,000 more at retirement. So is it worth spending an extra $5,000 on a car now to give up $20,000 later?

Seeing the difference between investment options

Let’s go back to the bonus of $5,000 after-taxes. You won’t need the money for 24 years, when you plan to retire.

You have a choice of two investments – one that has yielded 3% historically and another one that has returned 6%.

With the first investment, you’ll double your money one time in 24 years – ending up with $10,000. With the second, you’ll double it two times – so you could expect it to turn into $20,000.

Why your own business may be the answer

Finally, let’s talk about owning your own business. A lot of people have seen their investment portfolios hit pretty hard.

If you’re one of them, what can you do? Invest in your own business.

It’s not unrealistic to think you can earn 12% on your money. Then you would double your money every six years.

So that $5,000 becomes $10,000 in six years, $20,000 in twelve, $40,000 in eighteen and $80,000 in 24 years.

This is how real wealth is created. Look at any list of rich people – they probably own their own business.

Of course, remember that this is general advice. You’ll want to seek the advice of your professional advisors about your situation.

The Rule of 72 helps you make investment decisions by helping you quickly understand how money compounds. It’s a financial tool that will help you reach BIGG success!

When it comes to money, we’re all conscious these days that we have to save more. We saw a great definition of saving the other day by Carolyn Jabs. Her Growing Up Online column appeared in an article in Columbus Parent. She said:

“In its finest form, saving doesn't mean depriving yourself or your family of what you want, much less need. Instead, it means comparing long-term and short-term goals to decide which matter most.”

Bigg trade-offs

When she puts it that way, saving doesn’t sound so bad! We often think of savings as “doing without.” It’s not doing without. It’s deciding on the timing.

Saving, in and of itself, is not a noble act. It’s a means to an end, not the end. It’s about trade-offs – trading now for later or later for now.

If you pay cash for something today, you give up earning money on the money you used for the purchase. Your money will work for you if you save it and invest.

If you buy something and finance it, you’re deferring cash out the door today in exchange for even more cash out the door (since you’ll have to pay interest) in the future.

So, ultimately, it’s a decision about what will make you the happiest – enjoying your money now or stashing it away so you can enjoy it more tomorrow.

It’s living with purpose on purpose – defining your bigg goals and living each day to achieve them.

Your bigg plan

What if you don’t have to sacrifice the present for the future? That’s a bigg idea! Look for ways to enhance your present and your future.

You are the entrepreneur of your life, irrespective of whether or not you own your own business. Your life is your enterprise. You, and only you, are in charge of this enterprise. As the entrepreneur, plan your purchases.

Don’t get caught buying on impulse. It’s a trap that really hits us hard. And we’re not just talking about those insignificant items at the check-out. Marketers are really good at making us think we can’t afford to wait.

For example, think about the ads that promise “No Payments for Two Years.” We translate that, in our minds, as if we’re not spending money for two years. But the reality is, if we don’t have that money already set aside, it’s probably going to give our finances a jolt when the payments kick in … at incredibly high interest rates.

Synergize to ramp up your savings

By planning our purchases, and then sticking to the plan, we’ll only buy those items that we’ve determined make us happiest. We can keep our eyes open for the best deal which saves us money now – money that can go straight to our savings.

If you’ve set aside $2,000 and then only spend $1,500, give yourself a night out on the town in celebration of a job well done. Take the rest and put it into your savings.

By synergizing our savings with our spending, we can save more money for the future because we get the best deal when we buy today. That’s how we get what we want today without depriving ourselves. It’s one thing we can do to propel us to bigg success!

Health insurance is a significant expense. If you’re fortunate enough to be part of a group, your company is probably paying a good portion of the cost. However, companies are increasingly asking their employees to bear a bigger share of the total cost.

Of course, if you’re self-employed, you have to pay it all. This really hits your budget in either case and, as we look to the future, it appears it will occupy an ever larger share.

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I used to sell insurance years ago so I’m familiar with that side of it. I also approved our group plans when I was in business before Bigg Success.

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When we started Bigg Success, it was an eye opener for me. I went from being an employee with group insurance to being self-employed buying individual coverage. I saw the full cost, not just my share of it. I was amazed at the array of choices. And I couldn’t get some of the coverage I really liked under my group plan.

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Obviously, your age and your health are two major factors in the cost. The other key factors are:

Your deductible. This is the first money that will be paid out. You pay it up to the deductible you choose.

Your co-pay percentage. Once the deductible is satisfied, you begin sharing the cost with your insurance provider. You may split it down the middle or some other arrangement.

Your stop loss. You don’t have to share costs forever. At a certain point, your insurance company will pay 100% of the covered costs.

Your maximum coverage. It will look like a large number (e.g. $2 million) but it can be used up fairly quickly if there’s a serious health problem.

Your maximum out-of-pocket. This compiles the first three factors. Your maximum out-of-pocket equals your deductible plus your maximum co-pay amount. It only considers covered costs so just be aware that your actual out-of-pocket could be higher.

So now we want to talk about three mistakes that people often make when buying health insurance.

Pushing too much risk onto the insurance company. Being too conservative is very costly. For example, the higher your deductible, the less you’ll pay.

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But George, I know when I’ve been light on money, it’s scary to think about a large hospital bill. Even a doctor’s bill of $300 – $500 can be a burden when you’re really strapped for cash.

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I understand that, Mary-Lynn. But I’ll give you an example of what I’m talking about. A couple we know has over $50,000 in the bank, yet they insist on having a deductible of $500. They could save a lot of money by being a little less risk averse.

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Not shopping around. As we’ve said, this is a major expense. Like most major expenses, it’s worth your time to try to save some money. So get two, or even better three, quotes.

Make sure you’re comparing apples-to-apples. The plans from two different insurance companies probably won’t be exactly alike.

Settling in. Shop carriers at least every other year. You may be surprised at how much you can save by switching plans.

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This is something I learned the hard way. I liked my insurance company, but when I finally shopped coverage, I was astounded at how much I could save.

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This really boils down to personal preferences. It’s nice to only pay a small amount of money when you go to the doctor. But make sure you’re weighing that convenience against the actual cost.

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The key question to ask yourself is, “How much risk can I afford?

The general rule, in a financial sense, is to assume risks that are small, frequent, and inexpensive. You cover large, infrequent and expensive costs.

But also consider the emotional costs. If it’s going to keep you up at night knowing that you’re bearing a larger share of the burden, then push more risk off on the insurance company.

Think about the impact on your finances and your personal preferences to help you make this bigg decision.

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At BIGG Success, we nurture your inner entrepreneur so you can live your life on your own terms. It’s about entrepreneuring your life – taking full control to design and build the life that fits you perfectly. Read more.